The wrong side of a 50/50 chance

Dave Kutcher

by Dave Kutcher

So, 50/50 chance of winning sounds like a pretty good opportunity to win a prize. Let’s face it, grabbing a few pull-tabs on your way home from work can be fun and you have a pretty good chance of coming out with some payback. With a 50/50 chance of winning in any game, we all might find it acceptable odds for dropping a few bucks and having some fun.

But, sometimes in life the 50/50 proposition means there is much more at stake than losing a few bucks on pull-tabs.

The statistical reality of how many people over the age of 65 will require some form of long term care (LTC) is one of those 50/50 chances. That’s right, 1 out of 2 people over age 65 will require long term care. Long Term Care is required when someone is unable to perform 2 or more of 6 activities of daily living (ADL) or is cognitively impaired with dementia or Alzheimer’s disease. ADL’s include; bathing, dressing, eating, transferring, toileting, continence.

The inability to perform these daily functions for yourself means that someone needs to be able to help you with these custodial tasks. These are not medical expenses that are eligible for reimbursement under your health insurance and for those of you on Medicare, these custodial care expenses are NOT covered.

There are some other sobering statistics that you should be aware of when thinking about the risk of needing Long Term Care. The average length of time someone does need care is two years. Furthermore, the average annual cost of care is approximately $125,000. So, in today’s dollars, you have a 50/50 chance of needing care that will last two or more years with a total average cost of $250,000.

Now, most people do not require this type of care at the beginning of their retirement. In fact, it could be 10, 15 or 20 years before such a situation might arise for you or your spouse. So, when contemplating the financial risk that exists we need to project what those costs might be 10, 15 or even 20 years from now.

With the cost of this care rising faster than inflation, a projection of $250,000 in today’s dollars means we are looking at possibly having to spend upwards of $500,000 or more PER PERSON. This means a couple in their retirement today could be facing a possible LTC expense, if both spouses require care, that might exceed $1,000,000.

And here is a further rub when applying a dose of reality to this discussion; cognitive related LTC averages closer to 5 years. When you consider the cost of a longer-term issue such as this, even 1 person requiring care could amount to more than $1,000,000 being spent on custodial care.

So, ask yourself this; “how would my retirement plan monies hold up if one or both of us needs long term care at some point during pour retirement?”

If you have focused on market volatility as your only real financial risk at retirement, think again. Market volatility is certainly a concern during a time when you are beginning to take distributions from your retirement plans, but the notion of having to spend $250,000, $500,000 or maybe even a $1,000,000 is a far greater risk to your plans over time.

Of course, there is also the chance you or your spouse might not be either of the 1 out of 2 in the 50/50 proposition.

As part of our planning with clients we explore ways to mitigate this risk without literally spending money to cover the risk. There are many multi-faceted financial products today that allow you to leverage your assets in the event of a Long Term Care event, but also preserve these assets for you if the event never comes.

Don’t wait to find out you are on the wrong side of a 50/50 chance. We can help you with your consideration for this very real risk.

I am Dave Kutcher, a retired Marine Corp Captain and founder and owner of Kutcher Financial Services in Eagle River. We are on the radio every Saturday morning, “Retirement in the Last Frontier”, 8:30-9:30 on AM 650, Keni Radio. Kutcher Financial Services, 10928 Eagle River Road; Eagle River, AK 99577, (907) 795-7452.